ISAGO and IGOM Programs: Assets for Risk Management

ISAGO and IGOM are two steps in the right direction for improving the risk profile of the ground service provider (GSP) industry. ISAGO stands for the International Air Transport Association (IATA) Safety Audit for Ground Operations. It is an on-site inspection at GSP stations around the world as well as at each headquarters and/or administrative/corporate office. The ISAGO program is well under way, having conducted 210 audits and registered 45 GSPs. There are several objectives of ISAGO, including improving safety on the ground, reducing the number of safety audits that

GSPs have to undergo and reducing overall costs, as well as setting a minimum standard of competence in the industry.

The IATA Ground Operations Manual (IGOM) is a new project designed to compile best practices into one definitive manual of standard operating procedures. One of the key source documents is IATA’s Airport Handling Manual, which has served as such until today. However, in order to continue to improve the performance of ground operations, it is essential to have basic operating procedures that are standardized and supported worldwide. Without them, performance increases or decreases can never be measured. Thus, the need for the IGOM.

Insurance

How does insurance fit into this picture? Insurance is a way to finance a company’s property or liability losses. Insurers take a company’s losses such as repair costs, replacement of aircraft, and employee injuries to name a few, and then they estimate how much money it will cost to cover them. That amount, in addition to an operating and profit margin, is what generally speaking constitutes the premium that is charged. So, instead of putting money in the bank to cover those losses, a company pays an insurer a fee to use an insurer’s money for this purpose.

What has happened steadily over the last few years is that the GSP industry’s losses have continued to increase, and naturally so has the premium. Although insurers will continue to base their premium on past losses and charge accordingly, there is a real need to stem the losses in the first place. The principal reason is that airlines pay for nearly all of these losses. Estimated at $4 billion annually, ground damage is not just about damages to the exterior of an aircraft. It includes all of the consequential or “added” costs like leasing another aircraft, financing charges, hotel payments, rerouting of passengers, etc. And a lot of these costs are not covered by insurance.

Although GSPs are usually required by airlines to have insurance coverage, and it is recommended in IATA’s Standard Ground Handling Agreement (SGHA), the recommendations are out of date (too low) and do not adequately take into account the latest outsourcing trend. So, as airlines have eliminated their ground service subsidiaries and have outsourced the work to third parties, one might think that the cost and the exposure to risk would be reduced. However, that’s not the case at all. In fact, just the opposite appears to be true. How can that be?

One can think of outsourcing as getting rid of some responsibility and some cost for doing tasks that were previously done in-house. On the other hand, most people do not consider the fact that outsourcing by definition gives up a large degree of control over how things are done, how safely they are done, and exactly who does them. These factors can produce a significant amount of damage if not supervised and accounted for very carefully.

Another related factor that influences the nature and amount of damage that occurs is exactly who should pay for the damage. As it stands currently, the SGHA suggests that GSPs are responsible for damages over $3,000 and up to approximately $1.5 million. The airline assumes the rest. “The rest” is a huge spectrum. It means that everything above $1.5 million has to be paid for by the airline unless the GSP intended to cause the damage.

It is all too apparent that $1.5 million does not go very far when it comes to repairing or replacing an aircraft. Back to insurance: GSPs buy it for their share and airlines buy it for their share. It is expensive because of the amount of damages that are occurring. How can we bring down those damages? Figure out what the root causes are and fix them. Simple as that. It’s known as risk management.

Getting ISAGO registered is a win-win proposition. While IATA is presently funding the corporate cost fee of the audit and insurers are willing to recognize the effort (in terms of keeping your premiums down), it only makes sense to invest in it. Although it will require some organization, some determination and some cultural changes, the idea is to make GSPs and airlines better off with ISAGO than without it.